dissenting.
I was the author of the majority opinion in this case which was handed down on October 12, 1942, and which appears in Craddock-Terry Co. v. Powell, 180 Va. 242, 22 S. E. (2d) 30, when the convictions of the majority appeared immutable.
I adhere to the views therein expressed, and now incorporate in this, portions thereof, which I wish to emphasize.
The statutes, the provisions of which, constituted the warrant for the procedure of the Craddock-Terry Company in this case are sections 3820a and 3822 of the Code of Virginia.
At the end of the first paragraph is this significant proviso:
“and provided, further, that any such sale or lease under the provisions of this section shall not affect (effect) a dissolution of the vendor corporation.” The parenthetical *458word is employed by us as correcting what is a patent typographical error.
“The appellees barricade themselves behind the provisions of the charter amendment of January, 1913, and similar language incorporated in their stock certificates. Paragraph (b) is as follows: “All preferred stock issued under authority of this resolution shall be preferred as to earnings to the extent of six per cent per annum, and said dividends shall be cumulative, and said preferred stock shall also be preferred as to assets in liquidation.”
This is urged as their authority for the position that the plan proposed by the board of directors and adopted by more than 80% of the stockholders was really a liquidation of the assets of the old company.
The judge of the trial court adopted the view of the appellees, holding that the plan of sale contemplated distribution and liquidation of all of Craddock-Terry Company’s assets, and from a practical standpoint it resulted in a dissolution of the corporation. He said, among other things: “The Virginia statutes as I read them do not deal with distribution in liquidation. Certainly not in terms. And if it could be fairly said that they did, the result would not be changed, because I would have no hesitancy in saying that any such attempted impairment of the contract obligations of the holders of the several classes of stock would be unconstitutional.”
The majority opinion approves and affirms this statement. I do not regard it as a sound exposition of the law. The statutes referred to are ignored as to the effect for which they were conceived and the decision of this court expressed in the majority opinion is in the face of the decision of this court in the case of Winfree v. Riverside Cotton Mills Co., 113 Va. 717, 720, 75 S. E. 309, 310.
It is true that that case had to do with the consolidation of two or more corporations, but it dealt with the rights of dissenting stockholders and much of what was said there is applicable to the conditions here.
*459In speaking of the reservation of the power to the state to alter and amend the charter of a corporation this court, in that case, said:
“It seems that such a reservation of power to the state prescribed by the laws in force when the charter is granted, whether written in the Constitution, in general laws, or in the charter itself, qualifies the grant, and that the subsequent exercise of that power cannot be regarded as an act impairing the obligation of contracts.”
The rule as expressed in Winfree v. Riverside Cotton Mills Co., supra has received very general acceptance.
The case of Germer v. Triple-State Natural Gas, etc., Co., 60 W. Va. 143, 54 S. E. 509, furnishes an apposite and persuasive precedent, here.
We quote from the brief of the appellants counsel filed on the re-hearing of this case:
The transaction there involved was spoken of as a “sale” of all of the property of a corporation in return for shares of stock in a new corporation which, upon organization, was to “purchase,” among other property, all of the assets of the original corporation and assume all of its obligations. The purchasing corporation was to issue its securities which were in part to be given to the stockholders of the'vendor corporation in exchange for their stock.
There was dissent on the part of certain of the stockholders, who relied upon substantially the same considerations as the dissidents in the instant case as grounds for invalidating the transaction. It was held that the empowering statute, which authorized the sale and disposal of the property of the corporation by the affirmative vote of the holders of at least 60% of the outstanding stock was constitutional, notwithstanding it was enacted after the granting of the corporate charter and after the contract rights between the stockholders had taken effect and that the “sale” was therefore valid. The Court said in this connection (citing numerous authorities):
“When the Triple-State stock was subscribed for by the stockholders, they did so charged with a full knowledge of *460the statutory provisions then existing under which the legislature might, at any time, alter, amend, or repeal the provisions of the law which were made a part of the charter .... The broad reservation to the legislature to ‘Amend, alter or repeal’ the provisions of the statute under which corporations operate are as though written into every charter issued thereunder, and every subscriber to the stock of anv such corporation is charged with full knowledge of the provisions of the law then existing, under which the legislature might, at any time, amend, alter, or repeal the provisions of the law which were so made a part of the charter, and such subscriber must be held to have given his consent that such change might at any time be made by the legislature. This- being true, it cannot be claimed, with good reason, that by such action the legislature would be impairing the obligation of any contract the subscriber entered into when he became a stockholder.”
It is true that in Trustees v. Woodward, 4 Wheat. (17 U. S.) 518, 4 L. Ed. 629, it was held that the charter of a corporation was a contract and that the same could not be impaired by subsequent legislation, but it will not be overlooked that in the concurring opinion of Mr. Justice Story, the principle for which we contend was recognized and clearly stated, when he said that when the Legislature granted a charter for a corporation a “provision in the Statute reserving to the Legislature the right to amend or repeal, it must be held to be a part of the contract itself, and the subsequent exercise of the right would be in accordance with the contract, and could not, therefore, impair its obligation.”
The consequence which follows from this reservation is set out in Stanislaus County v. San Joaquin, etc., Irrigation Co., 192 U. S. 201, 24 S. Ct. 241, 48 L. Ed. 406, as follows:
“The original incorporators or subsequent stockholders took their interests with knowledge of the existence of this power, and of the possibility of its exercise at any time in the discretion of the legislature.” (See also Greenwood v. Freight Co., 105 U. S. 13, 26 L. Ed. 961.)
*461It therefore follows that, when in 1930 the Virginia Legislature, pursuant to its reserved power, as contained in Sections 154 and 158 of the Constitution of Virginia and Sections 3841 and 3852 of the Virginia Code, enacted Section 3820a providing for the sale of corporate assets and when it amended the same in 1936 and also, when in 1903 it enacted the statute providing for the merger and consolidation of corporations and subsequently passed the amendments thereto, now Section 3822 of Michie’s Code of 1936, and by said Section 3820a integrated the procedure provided by Section 3822 for the establishment of the fair cash value of the stock of a dissenting stockholder, it was well within the limits of constitutional competence.
Let us turn aside for the moment and consider the meaning of the word “liquidation” as it appears in the preferred stock certificates and in the amendments to the charter, which have been heretofore quoted. The appellees lean strongly upon the defense that the plan, which we have been considering and which was adopted in the reorganization of the old company resulting in the new company was really and in fact a liquidation of the assets of the old company, and this contention was sustained by the trial court. The scheme or plan and its incidents do not sustain this position.
In Words and Phrases, Perm. Ed., vol. 25, pp. 368, 371, we find the following:
“Mr. Justice Story said in Fleckner v. Bank of United States, 21 U. S. (338), 8 Wheat. 338, 362, 5 L. Ed. 631: ‘The ordinary sense of liquidation, as given by lexicographers, is to clear away—to lessen—a debt; and in common parlance, especially among merchants, to liquidate the balance is to pay it.’ Richmond v. Irons, 121 U. S. 27, 7 S. Ct. 788, 804, 30 L. Ed. 864.
“ ‘In its general sense, liquidation means the act or operation of winding up the affairs of a firm or company by getting in the assets, settling with its debtors and creditors, and appropriating the amount of profit or loss.’ 3 Cent. Diet. 3474. The word was so used in a resolution of the directors *462of an insurance company to reinsure its risks and to liquidate its affairs. L. D. Garrett Co. v. Morton, 35 Misc. 10, 71 N. Y. S. 17, 19.”
“ * * * Liquidation is the act of settling or adjusting debts, or ascertaining their amount, or the balance due.” Am. & Eng. Ency. of Law, Second Ed., Vol. 19, page 391.
The plan submitted by the board of direct’ors, measured by the above definitions, dissipates the notion of the presence of liquidation. It was not concerned with the debts of the old corporation, as to a statement of them for the purpose of paying any balance ascertained. It was not an operation of winding up the affairs of the old company by getting in its assets and settling with its debtors and creditors, nor did the element of “profit or loss” enter into it. In our opinion it involved an entirely different and exceedingly important doctrine associated and connected with corporations, which is that of Reorganization.
“In Corpus Juris Secundum, vol. 19, Corporations, p. 1318, Section 1578, an entire section (that referred to) is devoted to the subject “Reorganization”. This is said: “Reorganization of a corporation is the reconstruction or rehabilitation of an existing corporation. It is frequently regulated by statute, the right to reorganize being derived from the laws of the state of the corporation’s origin.
“Reorganization, in the law of corporations, has been defined to mean that by some process a corporation has organized anew, usually effected by the dissolution of one and the organization of a new corporation to take the property and franchise of the first and to continue its business. # * # It has been held that where a new corporation is formed by stockholders and directors of an existing corporation, and its directors and practically all its stockholders, franchises, and property are identical with those of the old corporation, the transaction both in fact and in law amounts to a reorganization of the old corporation.”
Idem. “While courts will not formulate plans of reorganization and compel the persons affected thereby to accept them against their will, yet courts in general are *463favorable to reorganizations which are fair and free from fraud.”
By the plan which was adopted the new corporation, i. e. the Craddock-Terry Shoe Corporation, was formed by stockholders and directors of the old corporation, i. e. Craddock-Terry Company. The stockholders and directors of the new corporation and its property (except its franchise) are identical with those of the old corporation, with the exception of the dissident stockholders of the old company. Their objects, purposes and business were identical with the exception of the fact that the new corporation entered the business world with a capital structure unimpaired and in inviting form for credit and confidence. This was accomplished by the single' stroke of reducing the par value of $100 for the existing common stock to new common of no par value, but which is carried on the books of the new corporation at $1 per share. This advantageous condition is in contrast to that of the old company which was burdened with a capital impairment of approximately two million dollars. The new set-up should have presented a consummation devoutly to be wished.
That the transfer of the assets in the immediate case by the vendor corporation and the receipt of stock of the vendee corporation in payment thereof is not an act of liquidation will be seen by the following authorities.
Buck v. Kleiber Motor Co., 98 F. (2d) 903:
“Petitioner claims that the transfer of assets from the Truck Company to the Motor Company in 1926, constituted a liquidation of the Truck Company within the meaning of the provision of its articles of incorporation reading: ‘ * * * (In) case of liquidation or dissolution of the Company, (the preferred stockholders) shall be paid in full at the par value of their said shares and the accrued dividends, before any amounts shall be paid to the holders of the common stock’.”
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“We do not regard a transfer of all the assets upon the consideration of an issue of stock by the transferee to the *464transferor, the latter to become a holding company, as a liqtddation of the latter company’s assets. The fact that the stock in fact never was acquired by the transferor of the assets and part was accepted by some of the stockholders of the transferor corporation does not change the transaction into a liquidation within the meaning of the latter’s corporate articles.”
In the case of In re Fulton, 257 N. Y. 487, 178 N. E. 766, 79 A. L. R. 608, in which the Corporate Sales Statute of New York, very similar to the Virginia Statute, which provided for the appraisal of the stock held by a dissenting, preferred stockholder, this was said:
“We do not pass upon the question of the proper rule to be applied upon the distribution of surplus between common and preferred stock upon the dissolution of a corporation. The determination of that question is not involved in this case.”
*4£, 4!, Ji. M. w 'jv* ■3? w
“This proceeding has no resemblance to an action or proceeding to dissolve a corporation. It is a purely statutory proceeding. The statute expressly provides for the fixing of the value of the stock of a going concern, as of the time of the dissent.”
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“While the sale of the assets of a corporation changes the character of the business of the vendor corporation, and establishes the right of a dissenting stockholder to have his stock appraised, it does not amount to an actual dissolution.”
The case of Federal United Corp. v. Havender (Del.), 11 A. (2d) 331, presents a comprehensive and logical treatment of the, important questions here, though it was concerned with a merger.
The sixty-six page brief of the learned attorney amicus curiae gives it scant consideration and seems to find much from the fact that the Harvard Law Review in volume 53, page 877, commented upon it with disapproval. He perceives that there is a basic distinction between a sale of *465assets and a merger which satisfies his estimate of the significance of the case.
Here is what is said in part by the eminent Chief Justice of the Delaware court, in speaking of the elements of the merger and consolidation provisions of the Delaware General Corporation Law, which I submit is consonant with the view I am endeavoring to express and is apposite:
“It is elementary that these provisions are written into every corporate charter. The shareholder has notice that the corporation whose shares he has acquired may be merged with another corporation if the required majority of the shareholders agree. He is informed that the merger agreement may prescribe the terms and conditions of the merger,- the mode of carrying it into effect, and the manner of converting the shares of the constituent corporations into the shares of the resulting corporation. A well understood meaning of the word “convert”, is to alter in form, substance or quality. Substantial rights of shareholders, as is well known, may include rights in respect of voting, options, preferences and dividends. The average intelligent mind must be held to know that dividends may accumulate on preferred stock and that in the event of a merger of the corporation issuing the stock with another corporation, the various rights of shareholders, including the right to dividends on preference stock accrued but unpaid, may, and perhaps must, be the subject of reconcilement and adjustment; for, in many cases, it would be impracticable to effect a merger if the rights attached to the shares could not be dealt with. The state has an interest in the corporate structures erected under its authority. Having provided for the merger of corporations, they are not regarded with disfavor. On the contrary, mergers are encouraged to the extent that they tend to conserve and promote corporate interests. The catholic quality of the language of the merger provisions of the law negatives- a narrow or technical construction if the purpose for which they were enacted is to be accomplished. MacFarlane et al. v. North American Cement Corporation, 16 Del. Ch. 172, 157 A. 396. Moreover, *466it is recognized that there may be shareholders who will be dissatisfied with the effects of the terms of the merger proposal upon the rights attached to their shares. While their right to dissent is admitted, the public policy of the state declared by the statute, somewhat analogous to the right of eminent domain, does not permit a dissenting shareholder, as against an affirmative vote of two thirds, to veto a merger agreement if its terms are fair and equitable in the circumstances of the- case. Within the time and in the manner provided by the statute, the dissatisfied stockholder, if he so desires, may demand and receive the money value of his shares as that value has been agreed upon or has been determined by an impartial appraisement. Consequently, in a case where a merger of corporations is permitted by the law and is accomplished in accordance with the law, the holder of cumulative preference stock as to which dividends have accumulated may not insist that his right to the dividends is a fixed contractual right in the nature of a debt, in that sense vested and, therefore, secure against attack. Looking to the law which is a part of the corporate charter, and, therefore, a part of the shareholder’s contract, he has not been deceived nor lulled into the belief that the right to such dividends is firm and stable. On the contrary, his contract has informed him that the right is defeasible; and with that knowledge the stock was acquired.”
See also Hottenstein v. York Ice Machinery Corp., 45 F. Supp. 436, in which the injured preferred stockholders lamented that the merger was not bona fide and “is a sham, subterfuge, and device employed as a vehicle to deprive the Preferred Stockholders of their preferential rights and accumulated dividends.” The court, however, took a different view of the matter following the Havender case to which we have pointed.
See also Hubbard v. Jones, etc., Steel Corp., 42 F. Supp. 432.
As I see it a complete refutation of the soundness of the attitude of the majority is found in the provisions of the applicable statutes of Virginia, which it chooses to ignore. *467This fact differentiates this case from most of those cited in the majority opinion and makes them inept beyond their philosophy.
The two statutes, sections of the Virginia Code (Michie), 3820a and 3822 unite in suitable agreement to form a perfectly blended scheme to accomplish the ends intended by the legislature.
The decision strikes down and frustrates a wholesome statutory purpose.
I cannot refrain from noting that the eminent attorney, amicus curiae, stresses his point that the directors of the retiring corporation here must be seen and viewed in their fiduciary relation as trustees of the corporate interests and matters. I cannot conceive of a more impelling obligation upon such relationship than a strict observance of the provisions of the governing statutes. Nor is there a safer guide.
The appelles urge with insistency that the sale of the corporate assets and the distribution of the proceeds of the sale are separate and distinct matters and that the statutes invoked do not provide for distribution and that there is the incident which overthrows the position of the appellants.
This contention is amply answered by its treatment in the brief of eminent counsel for the appellants:
“Even were this a correct assumption, it would not affect the result. But a careful reading of the statute shows the patent error of this conclusion. The subject matter of the statute is the sale of the whole of the corporate property and assets. It provides that a dissenting stockholder upon giving the prescribed written notice, shall, upon the ascertainment thereof, be paid by the vendor corporation the fair cash value of his stock. If this fair cash value, so paid by the vendor corporation, which has sold and transferred the whole of its property and assets, is not a distribution of the proceeds of the sale, by what legerdemain has the fund been brought into existence?
“The answer is found in the plan outlined in the letter to the stockholders, dated August 1, 1938 (Rec., p. 130), whereby the vendee corporation bound itself as a part of *468the consideration to pay the vendor such sums as equals the amounts the vendor might be required to pay its dissenting stockholders, pursuant to the Virginia statutes. As to the dissenting stockholders, Section 3820a provides that the vendee corporation may acquire the whole of the property and assets of the vendor upon such terms and conditions and for such consideration, either payable in cash, stock or securities of another corporation as the board of directors, in their discretion, may determine. It might be observed that a dissenting stockholder, being entitled to payment in cash, would not be concerned with his fellow stockholders who had approved the sale and elected to be bound thereby. In any event, upon their concurrence in the sale, the question is one' between the assenting stockholder and his corporation, without interference from a dissentient who has elected to be paid cash from the proceeds of sale.
“As was said in Feld v. Roanoke Investment Co. (Mo.), 27 S. W. 637:
“ ‘There can be no question but that the Fair Company (vendor) had the right to take stock in the Roanoke Company (vendee) for those of its stockholders who were willing to take it in lieu of money.’ ”